Better Days Ahead?

SA's historic mining sector has been taking it on the chin for the last five years

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Our internal problems were not helped by the wider economic and/or oil and gas slowdown internationally, making the need to streamline and modernise mining operations locally a priority, while dealing with a number of labour and social issues head on.

The “State of Capture” report has done the industry no favours, casting a dark shadow over the ethics of the mining house and electricity provider mentioned. However, it is positive to see that the reported wrongdoing has been brought to public attention.

Now to make sense of the complex nature of mining locally, and provide the expertise of arguably South Africa’s top mining lawyer Warren Beech, Head of Mining at Hogan Lovells.

And to make matters even better, Beech was in Houston Texas at the time of the interview, attending the Global Energy Summit, which gave him a prime seat to provide feedback from the much talked about US presidential election, expected to have implications for mining in South Africa (SA). Beech starts off by painting a picture of the atmosphere in the States at the moment, “Firstly there is a general consensus over here that the election was surprising. When it comes down to questions of why Donald Trump won and what it means, it is more a case of why Hillary Clinton lost. There is a feeling here that he won as a rejection of globalisation. The vote was based on a strong desire for localisation. So if that is the case there could be a negative impact on the mining industry in due course, particularly from an American perspective and their investments worldwide, and obviously in Africa.

“But there is another debate about honesty, which rated Trump’s dishonesty vs. Clinton’s and it was very interesting because his dishonesty during the election was permissible as typical political rhetoric, that is accepted in an election campaign. Whereas Clinton was dishonest about the emails, which was not an acceptable level of dishonesty. People understand that Trump is not necessarily going to continue with that rhetoric once he is elected. So nobody can really say with any certainty what impact it will have on anything.”

But it may not be all doom and gloom for mining, with Trump taking a stance against so-called climate change. “But if you look at what he’s said so far, there is a very strong focus on coal, denial of climate change with less importance on environmental aspects. So if that’s true, it will make a permissible environment for mining,” reflects Beech.

With sectors of mining locally having to lay off thousands of workers as pricing dips and operational cost spikes kill profit, there have been a few rays of light. Those rays of light often have to penetrate a thick cloud of political mismanagement along the way.

“There have been glimmers of hope of recovery but those were sporadic and not sustainable, but now they seem to be possible. Your gold, manganese, chrome and even coal are at sustainable prices and that is a positive. But the report on State Capture did not do us any favours; the MPRDA amendment bill has gone through its first stages. So the regulatory uncertainty still comes back and creates a un-investor friendly environment.”

And Eskom have not been doing themselves any favours of late, with a string of failed CEOs and baffling statements to the media and public over the need for a massive nuclear spend. “Somebody like Brain Molefe stepping down at Eskom sends a very strong signal to people that things are not right. Investors do look at all of that and are highly sophisticated in where they invest, and don’t just look at the commodity prices.

“The smaller players are looking and saying ‘why can’t I do this’, I need just as much support from Eskom to keep my business going. The established companies are looking on in concern, not certain if new mining and prospectus rights will be handed out, preventing them from doing business.”

On the flip side one could argue that that is a good sign — people are being bought to ‘book’ and exposed by the media and Public Protector for wrongdoing. I’d suggest that our media does a lot more exposing of corruption than other countries. I’ve heard that the sleepy hollow of New Zealand often hides their dirty laundry, with billions in corruptions taking place without much press exposure.Beech sees disclosure as a team effort. “It’s a combined effort of people wanting disclosure; the media has played a part in covering the events and having the strength and courage to disclose it. Our previous Public Protector, good people, citizens that believed in this was crucial.”The fine balancing act between the environment and need to mine and create jobs is a very telling factor for the sustainability of industry going forward. Without a steady supply of water, mining is near impossible.

“It’s extremely difficult. Some people will say that no commercial gain can outweigh the potential harm to the environment. But then there is the other end of the spectrum that says, project x will create jobs, feed into the local community and the general commercial environment beyond that. So it’s a very fine balance and the most important thing is the enforcement.”

Key opportunities in 2017

Aside from the doom and gloom, let’s now focus on the opportunities in 2017 for resource-rich Africa.“Namibia has been on the radar for quite a while from a natural resources point of view, and is fairly stable from a political and regulatory point of view. Mozambique comes up every couple of months as a hotspot. Unfortunately every time they get a bit of headwind up something happens, and it’s not normally political, but natural disasters. Mozambique is regarded as important for energy and infrastructure.“Zambia and Botswana have pretty much bottomed out with nothing really exciting happening. Nigeria, if you are looking further north is big from a telecoms and TMT perspective. The most important developments have been in agriculture and water/food security. So any of our neighbours with decent soil to graze or grow on close to water will become very important.”Meanwhile, the Department of Water and Sanitation (DWS) has raised their game of late, speeding up the time taken for a water license for mining. “The Department of Water and sanitation over the last five to six years has implemented a programme to speed up licensing, which used to be horrifically long. You could wait from 6-8 years to get a license. These days the licenses are coming out a lot quicker, with more resources been given to it.”

 

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